The energy quagmire

When something sounds too good to be true, it usually is. ‘Increase electricity consumption to lower the electricity bills,’ is one in a long line of such mantras. Other top hits include Pakistan’s trillion-dollar mineral reserves, oil off Karachi coast, and, the greatest of all, a car engine that runs on water.

The concept is simple for most experts with a little grip on principles of microeconomics: if the marginal cost of power production of running a plant (or the cost of production on a particular fuel) is higher than the overall weighted average power purchase price, higher generation will result in higher effective consumer tariff.

Energy conservation, and not more consumption, is the need of the hour. And it will yield twin benefits. One, it will take expensive fuel out of the equation; and the other, it will help the precarious balance of payment situation by lowering the fuel import bill.

Pakistan’s economic vulnerabilities are well established. It is common sense to conserve energy and lower the import bill in the short to medium term. Another important element is to have optimal use of any energy – gas, oil, coal or any other molecules, by extracting maximum efficiency.

Then, the economic efficiency of end use must be kept under consideration – not only by encouraging incremental use in revenue generating activities than in non-revenue generating consumption, but also, by encouraging incremental use in manufacturing industries – especially exporting segment - than by a marriage hall or a local retail, for example.

Thus, it makes sense to limit commercial activities to daytime (especially in summers) and incentivize the culture of work from home. This will save dollars, reduce electricity bills of retailers and traders, lower fuel consumption on transport, and lower (or eliminate usage) of expensive fuels in the power generation mix.

However, reducing unproductive energy use does not mean that we should shy away from utilizing excess capacity. The need is to convert other forms of inefficient energy consumption and bring it on to the grid. The focus should be on electrification of space heating (in winters) and mobility (transportation). Pakistan’s biggest energy import component is fuel for transportation. The transition towards EV should be expedited.

The conversation of EV should go beyond importing luxury cars such as e-tron and Merc EQS. The efforts should be deployed in converting two and three-wheelers to EVs on a fast-track basis. According to the World Bank, two-wheelers (with their relatively low capital costs and negligible charging infrastructure requirements) are typically the first vehicle category for which electric mobility becomes attractive, followed by buses and four wheelers in low- and middle-income countries.

Electric motors are much more efficient than internal combustion engines as the latter lose significant energy in the form of heat and noise. It is better to use electric motors, even accounting for energy loss in the generation, transmission, and distribution of electricity. Electrification of mobility has multiple benefits from reducing carbon print to efficient use of energy molecules.

There are manufacturers and start-ups working on EV bikes. The government should support them. The logistics, food delivery, and ride hailing companies should be incentivized to have EV bikes in their fleets. Then the next step is to convert intracity buses to EVs.

Then gas usage in households should be incentivized through pricing to move towards electrification. Sui gas supplies to households are perhaps the most inefficient use of energy molecules. And the beneficiaries are largely middle and upper classes, as less than one-third of households have gas connections. The remaining are relying on LPG (cylinder gas) or other expensive options.

Increase the gas prices significantly, across the board, and that will make households move towards electric geysers and heaters which would help in increasing the low winter load. It’s better to use gas in 60 percent efficient power plants than in burning 20 percent (or so) efficient water geyser and stoves.

Some say that increasing gas prices or moving captive generation to grid makes exports uncompetitive. That is not entirely true.

One living example is of Interloop - the company has factories in Punjab, and last year, it relied on grid power and LNG for its captive plants along with in-house solar generation, and its average cost of power was Rs29 per unit (grid at Rs27.5 and RLNG at Rs32), and still the company made staller profits of Rs20 billion. If Interloop can thrive with higher energy price, why can’t Gadoon Textile or others in the south?

Having said that, captives in the south cannot move to grid overnight. KE has additional generation capacity (though expensive fuel) to supply to the industry currently relying on captive generation. However, new grids must be made or interconnectivity with the existing grids must be established. The government should increase the price and give a timeframe of 12-18 months for industries to move to the grid.

The caretakers should do what is needful. They should set the tone for the upcoming government by presenting and implementing a comprehensive energy revamping plan. The good news is that due to excess power generation, there is healthy and apolitical media debate on the economic and social issues of the energy sector. The tone is set. It’s time to act!

Copyright Business Recorder, 2023